Crediting foreign withholding tax against trade tax
The question of whether foreign withholding tax surpluses may be credited against German trade tax has still not been clarified. Currently, in a number of cases, the tax courts are considering the range of crediting options under double taxation agreements (DTAs).
So, the Berlin-Brandenburg tax court, in its ruling of 14.1.2026 (case reference: 10 K 10106/23) allowed foreign withholding tax to be credited against trade tax and, thus, went against the restrictive view of the fiscal administration to date. The subject-matter of the dispute was the crediting of withholding tax against dividends with reference being made to the USA DTA. Up to now, the fiscal administration has on principle rejected the corresponding application of Section 34c of the German Income Tax Act and Section 26 of the German Corporation Tax Act to trade tax. Although, there was already an earlier ruling from the Hesse tax court, of 26.8.2020 (case reference: 8 K 1860/16), that approved further crediting. There was however no clarification by the highest court because, at that time, the appeal was rejected as inadmissible for procedural reasons.
The case before the Federal Fiscal Court (Bundesfinanzhof, BFH) (case reference: I R 2/26) means that, once again, the issue will be examined by an appellate court. Moreover, at the Münster tax court there is another case pending that relates to the crediting of foreign withholding tax against licence fees in connection with the DTAs with Turkey and China (case reference: 13 K 2190/24 G).
For affected companies, this development is of considerable practical significance. In particular, companies that operate internationally with foreign investment income or royalties should not allow negative notices of trade tax assessment to become unappealable.
